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Bank of England Governor Mervyn King last night warned that the short-run UK inflation outlook had worsened markedly, as it emerged policy makers at the bank voted eight to one in favour of holding interest rates at 5.5% at the committee's last meeting on January 10.

The January 10 meeting minutes, which were published today, came after King told a private dinner in Bristol last night that higher energy, food and import prices were likely to push inflation above the 2% target this year.

He said: "To put it bluntly, this year we are probably facing a period of above target inflation and a marked slowing in growth," adding it may rise to the level more than once at which he would need to write an open letter of explanation to the Chancellor.

He added: "We cannot avoid some volatility in the short run and it is important that everyone understands the limits to the ability of central banks to smooth the economy."

Policy makers agreed on January 10 that cutting rates in two consecutive months might give the impression that it was more focused on stabilising demand than meeting the inflation target. The committee last cut rates by 0.25% in December to 5.5%.

Neil Mellor, currency strategist at Bank of New York Mellon, said: "King's point that UK monetary policy is probably bearing down on demand does suggest that he at least will endorse a cut next month. However, in short, the expected deterioration in short-term inflation will probably mean that the bank will be unable to implement rate cuts at a pace that will assuage market fears for the UK economic outlook."

The yield on the 10-year Gilt fell slightly this morning from 4.5% yesterday to 4.4%, and is down from its 12-month high of 5.5% last July. Bond prices move inversely to yields.

The US Federal Reserve yesterday cut its rate by 0.75% to 3.5% ahead of its scheduled meeting next week.

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The cut sparked discussion in the markets yesterday as to whether the European Central Bank would also move to cut rates ahead of its next meeting but Jean-Claude Trichet, president of the ECB, told the European Parliament in Brussels this morning that he remained committed to fighting inflation.

Trichet said: "Even more particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets."